Why should you care about the commercial ratio?
Sales and marketing spending is grouped under operating expenses in the income statement.
The primary objective of both sales and marketing is to drive revenue growth. The ratio shows how well your company is using its resources to accomplish the objective.
Why does it matter?
Sales and marketing is the largest expense category for most B2B companies. To thrive in the post COVID world, businesses need to be more purposeful with spending, agile with programs, and collaborative across functions.
How the commercial ratio helps.
1) Provides transparency for executive teams
2) Creates accountability for results rather than activities
3) Promotes cross-functional collaboration
What is the core thought behind the ratio?
Sales and marketing should at least breakeven in terms of revenue growth your company generates (especially if you have recurring revenues). A 1.0 ratio is the measure of that breakeven point.
Where are most companies?
Well below 1.0. This means you could have produced more revenue for the investment made OR you could have spent less to produce the same results. Both are very important in this tough economy.
Sales is simple
Simple is hard